Plan Sponsors Doing More to Increase Plan Value

October 17, 2013 (PLANSPONSOR.com) – The defined contribution retirement system continues to improve, according to results of 56th Annual Profit Sharing and 401(k) Survey from the Plan Sponsor Council of America (PSCA).

The
survey found 95.3% of plan sponsors made matching contributions in 2012, when
provided for in the plan—up from 89.0% in 2010 and 85.2% in 2009. “We are pleased
that companies recognize the importance of matching contributions,” PSCA
Executive Director Bob Benish told PLANSPONSOR, adding that it indicates plan
sponsors have recovered from the 2008 recession.

Retirement
plan sponsors also continue to add plan design features to help their employees
save. According to the survey, Roth after-tax contributions are now available
at more than half of companies; automatic enrollment is used by nearly half of
plans (47.2%), including 61.5% of large plans; more plans are using a default
deferral percentage higher than 3% of pay (35.2%); and nearly 60% of plans
automatically increase the default deferral percentages over time.

“Plan
sponsors are also increasingly doing what needs to be done from a communication
and education standpoint,” Benish noted. In addition to the increase in auto-enrollment
and auto-escalation, plan sponsors recognize they cannot just do it for
participants and tell participants not to worry about it, he said.

According to Benish,
plan sponsors are seriously looking at their need to provide financial
education and promote financial wellness and literacy—particularly large plans,
among which one-quarter offer comprehensive financial education programs. As financial wellness tools and programs become
more available and cost effective, smaller and mid-size plans will embrace them
as well, he contended.

Benish
pointed out the increasing use of mobile technology. “Society has embraced
technology and participants want information how and when they want it,” he
stated. The survey found, in large
companies, mobile app penetration is 21.3%; among all plans, 13.3% use mobile
apps for education.

Overall,
Benish said, “The numbers don’t lie. The system is working; defined
contribution plans continue to grow.” He pointed to survey findings that 87.6%
of eligible employees have a balance in their employer plans, and they are
saving an average of 6.8% of pay (up from 6.4% in 2011, and 6.2% in 2010).

“Participants
get it. They are showing approval [of the defined contribution system] by
actively participating and continuing to participate,” Benish continued. “This
survey shows there is an appreciation for the system and participants
appreciate the hard work plan sponsors are doing.”

Benish
said he is pleased that people understand the value of their retirement benefits,
but hopes they don’t take for granted the importance of having this tax-deferred
system. Tax reform may lead to reduced contribution limits, so it is important
that plan sponsors and participants are aware of this threat and are vocal
about how the system works and that the tax advantage needs to be protected.